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Financial Institutions Insurance: The Quest for Certainty

12 October 2012

The challenge of shifting exposures explored at second annual Clyde & Co Global Financial Institutions Conference

The quest for certainty and the law of unintended consequences were two of the themes that emerged from Clyde & Co's Second Annual Global Financial Institutions (FI) Conference held in London on 9 October 2012. Over 170 Market professionals attended the day long conference which brought together a global panel of Clyde & Co's FI specialists and a number of leading players in the Market.

The day opened with a focus on current and future challenges for the Market. Led by Clyde & Co London partner James Cooper, the panel of underwriting, broking and risk management experts discussed a number of key issues in FI insurance including whether the original intention of cover under FI policies has changed, whether it is possible to run a profitable portfolio in the current market and whether a risk is ever too big to insure. Current major claims in the market were considered, including LIBOR, subprime, Chinese reverse mergers and Saad/Algosaibi. The Right Honourable Lord Lamont of Lerwick gave the Keynote address on the Eurozone and its future.

Practical claims handling considerations were addressed in a session on reservation of rights. Clyde & Co New York partner Ned Kirk explored how to manage reserving insurer's rights whilst preserving the commercial relationship with the insured. Whilst the legal concepts of a reservation of rights in UK and US law are similar, how the concepts play out in practice can be markedly different. As identified by the first panel, a current challenge for the market is to ensure that the coverage afforded under an FI policy matches underwriters' intent in light of shifting exposures, particularly in relation to coverage for action taken by an insured before a claim is made. 

In the session on policy wordings, Clyde & Co London partner Laura Cooke discussed Standard Life, a recent first instance decision on mitigation costs with this issue at its heart. The session included a practical explanation of how one insurer has clarified its wording in light of the decision. 

Triggers for cover for regulatory investigations, and the desirability or otherwise of adopting a 'bright line' test for coverage, were explored by Clyde & Co Sydney partner Oscar Shub.

Members of Clyde & Co's global FI team drew a map of the current global class actions regime looking at the position in the US, Canada, Asia and Australia. Whilst the US is often seen as the jurisdiction to avoid, developments in Canada (where recent case law on actions against foreign listed issuers is in stark contrast to the defendant-friendly US decision in Morrison), Hong Kong (where a class actions regime is being developed) and Australia (where the  AUS $3 billion Storm action continues) suggest that the appetite for class actions is growing. Darren J Robbins, a partner at Robbins, Geller Rudman & Dowd LLP and one of the leading plaintiff securities class action lawyers, noted that whilst a series of US Supreme Court decisions may have narrowed the parameters for securities class actions, a perhaps unintended consequence has been a fragmentation in the litigation landscape rather than a reduction in claims as opt-out actions rise to fill the gap.

Developments in fidelity cover were discussed in the final session of the day. A rise in claims under this type of cover has uncovered a number of key issues including cover for third party liabilities and how to interpret indirect loss exclusions. The session explored the backdrop to the current claims environment, including the socio-economic indicators for fraud in both the US and the Middle East, the latter being a jurisdiction where a transient population combined with low income and a still developing regulatory regime - factors which may lead to a higher incidence of fraud.

The speakers at the event included:

  • James Cooper, Partner, Clyde & Co (London)
  • Russell Bean, Head of Financial Institutions Underwriting, Talbot Underwriting
  • Helen Hayden, Risk Manager and second Deputy Chairman of AIRMIC
  • Ramesh Singh, Regional Manager Financial Institutions UK, Chartis Europe
  • William O'Kelly, Director, Aon Limited
  • Richard Coello, Assistant General Manager, Travelers Insurance Company Limited
  • Edward Kirk, Partner, Clyde & Co (New York)
  • David Nayler, Director, Aon Limited
  • Mark Bailey, Financial Lines Claims Manager, Ace European Group
  • Kim West, Partner, Clyde & Co (San Francisco)
  • Simon McConnell, Partner, Clyde & Co (Hong Kong)
  • Rod McLauchlan, Partner, Clyde & Co (Toronto)
  • Mark Beswetherick, Partner, Clyde & Co (Dubai)
  • Oscar Shub, Partner, Clyde & Co (Sydney)
  • Darren J Robbins, Partner, Robbins, Geller Rudman & Dowd LLP
  • Laura Cooke, Partner, Clyde & Co (London)
  • Debra Burford, Product Specialist UK - Financial Institutions, Chartis
  • Francis Kean, Executive Director of FINEX Global, Willis
  • Bill Lutz, partner, Clyde & Co (San Francisco)